Silicon Insider: An Army of Mavericks

The Florida GOP, iPhone hacking, Societe Generale and institutional loyalty.

Feb. 1, 2008 — -- What do Apple Computer, Societe Generale and the Florida Republican primary have in common? The growing power of the independents and the mavericks to determine the fate of large organizations.

Let's review this troika of events from the last week:

Apple Computer surprised analysts and industry watchers when, as in the previous two quarters, it posted both the number of iPhone unit sales and the number of iPhones registered and activated by the AT&T network. What made the numbers stunning was the discrepancy between the two: 1.7 million units.

Even if you subtract the iPhones sold in Europe and available on other carriers, about 350,000 phones, you are still left with 1.35 million missing iPhones. That's astonishing enough, but what is even more interesting is that the number of missing phones has been accelerating quarter by quarter.

It's not as if these iPhones are really disappearing; everybody has a pretty good idea what's happening to them. They are, in fact, being hacked. The proper term is unlocked, though it is fun to use the more loaded term given that Steve Jobs got his start in tech as a phone hacker … karma being a bitch.

Customers in growing numbers have been buying iPhones and then reconfiguring them to run other, and apparently more desirable, phone services.

This is quite remarkable for a number of reasons, not least of which is that Apple famously has some of the most loyal customers in consumer electronics. They have stuck with Apple through good times and bad — and mostly good times lately — and it is quite unexpected that they would suddenly begin to sabotage the company's carefully prepared business model and threaten its relationship with a strategic partner.

But even more interesting is the fact that despite Apple's every effort to stop this black market — limiting purchases to two iPhones, requiring credit cards, to changing the way the most recent iPhones download software from SIM cards — not only has none of it worked, but the rate of unlocking accelerated so fast in the last quarter that Tom Krazit of C-Net has concluded that "the unlockers are winning."

Societe Generale

Meanwhile, the financial world was roiled from one end to the other with news that Jerome Kerviel, a trader at France's Societe Generale, had managed, by creating fake futures trades to offset the investments he was making in European index funds — and thus circumvent multiple layers of the bank's computer-based fraud detection systems, as well as bamboozle his superiors — to lose Societe Generale an estimated $7.2 billion. It was the largest bank fraud in history.

To add insult to injury, Kerviel, now under police investigation, says that even he thinks it was impossible for him to pull off such a scam without his superiors somehow knowing about it and turning a blind eye.

True or not, this has created a double whammy on this venerable, $50 billion institution, one of the oldest banks in the world. Already caught in the global credit crunch, SG has now been so wounded by the Kerviel affair and loss of investor confidence that an emergency board meeting was called to determine whether chairman Daniel Bouton should resign (he didn't) and how the company could defend itself against the increasingly likely chance of a hostile takeover.

In other words, this is turning into one of the biggest bank crises in decades — so severe in fact that commentators in France are beginning to even question the French model of government capitalism — and it was all sparked by one guy who decided to go renegade.

The Grand Old Party

Finally, there is the matter of the GOP primary in Florida. Now, as we all know, Sen. John McCain was the declared winner, by a margin of about 5 percent of the votes, over former Massachusetts Gov. Mitt Romney. As a result, McCain was awarded 57 party delegates in the winner-take-all primary. And former New York Mayor Rudy Giuliani's third-place finish led him to drop out of the race.

But take a closer look at the Florida voter rolls. Right now, the state has about 10 million registered voters, 4.1 million registered Democrats and 3.8 million Republicans. Because the Florida primaries are "closed," only these citizens who are registered to a party are allowed to participate by voting in the primary.

But notice that there's something missing in that equation: 2.2 million unaffiliated or minor party voters. That's more than 20 percent of the electorate (30 percent of state Hispanic voters) — up from 16 percent a few years ago. In fact, the growth of this third group of voters has been twice that of new Democrat or GOP voters.

In other states, this shortfall might break roughly even between the two parties. But Florida may be an anomaly. Thanks to the large Cuban population in South Florida, a majority of those unaffiliated voters may in fact ultimately vote Republican in the November election.

But even more important for our purposes, that Cuban-American population tends to be more conservative than the GOP mainstream. Had these unaffiliated voters registered with the GOP, or just been able to vote in the primary — as they will in a number of states on Super Tuesday — the current status of the race for the GOP nomination might have been very different.

It also suggests that come November, when the race essentially narrows to the two candidates of the major parties, these maverick voters may prove to hold the keys to victory.

What Does This All Mean?

Two things, I think. The first is that, concurrent with our culture becoming ever more entrepreneurial, with more and more of our fellow citizens becoming "free agents" in regard to their careers and personal lives, there is also a growing sense of independence from all institutions.

Unlike our ancestors, we are being raised in a world where freedom and success come from not affiliating yourself with large, and often slow-moving and hidebound, institutions — be they large corporations, social groups, or it seems, political parties. That's the hidden lesson of the Florida GOP primary.

With this breakdown of affiliations inevitably comes a weakening of the ties of commitment and loyalty to the institutions to which we still belong. That's the lesson of Apple and Societe Generale. Apple, I'm sure, assumed that its famously loyal legions of users would go along with a commitment to link the iPhone to AT&T, no matter how much they found it distasteful. Apple, it seems, was wrong and if Jobs can't get his customers to follow his lead, what CEO can?

As for Societe Generale, all of its protections couldn't protect it from the danger it least anticipated: one of its own who understood the system and depended upon the trust of his work mates.

This is a whole different way of looking at Glenn Reynold's so-called "Army of Davids" empowered by the Internet Age. We expected all of these individual minds to be highly inventive and productive when harnessed together. What we didn't expect is that they might choose to march off in a different direction, rendering all of our measurement systems, business plans and security systems obsolete.

News About Our Columnist

Michael S. Malone's best-seller "Bill & Dave: How Hewlett and Packard Built the World's Greatest Company" has been named Best Business Biography & Memoir of 2007 by the popular business book site 800-CEO-Read. In making the award, In the Books magazine wrote: "Nobody writes books about Silicon Valley better than Michael S. Malone, and he's delivered another masterpiece. … This is a book of great character, reflecting well the great character of its subjects."

This work is the opinion of the columnist, and in no way reflects the opinion of ABC News.

Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News, as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, the Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNEWS.com Silicon Insider columnist since 2000.